Byron Pty Ltd and Commissioner of Taxation (Taxation)
[2019] AATA 2042
•17 July 2019
Byron Pty Ltd and Commissioner of Taxation (Taxation) [2019] AATA 2042 (17 July 2019)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2016/3546
Re:Byron Pty Ltd (a pseudonym)
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Ms G Lazanas, Senior Member
Date:17 July 2019
Place:Sydney
The Tribunal revokes order 2 with respect to confidentiality made on 4 September 2017.
The Tribunal affirms the objection decisions with respect to the notice of assessment of GST amount and the administrative penalty.
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Ms G Lazanas, Senior MemberCATCHWORDS
TAXATION AND REVENUE – goods and services tax – entitlement to claim input tax credits – whether creditable acquisitions made – meaning of supply – meaning of acquisition – whether applicant liable to provide consideration lack of evidentiary base – administrative penalty – whether conduct involved recklessness – whether applicant is entitled to remission of penalty – objection decision affirmed
PRACTICE AND PROCEDURE – application for revocation of confidentiality order made following hearing of Part IVC review application – request for private hearing under s 14ZZE – confidentiality order restricting any information tending to reveal the identity of the witness – interests of witness – evidence given by witness voluntarily – witness without legal representation – witness informed of privilege against self-incrimination during adjournment and subsequently asserts privilege against self-incrimination – application granted
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth), s 35, 43
A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 7-1, 9-5, 9-10, 9-15, 9-20, 11-5, 11-10, 11-15, 11-20, 29-10, 195-1
Evidence Act 1995 (Cth), s 128
Taxation Administration Act 1953 (Cth), ss 14ZZE, 14ZZJ, 14ZZK; Schedule 1, ss 284-75, 284-80, 284-90, 298-20CASES
Brown v Federal Commissioner of Taxation (2001) 47 ATR 143
Federal Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49
Federal Commissioner of Taxation v Pham & Ors [2013] FCA 579
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
Hart v Commissioner of Taxation (2003) 131 FCR 203
Investrix Pty Ltd v Commissioner of Taxation [2015] FCA 1427
Lee v New South Wales Crime Commission [2013] HCA 39
Lee v The Queen [2014] HCA 20
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 at 314
Re Applicant and Federal Commissioner of Taxation (2013) 94 ATR 965
Re Applicants and Federal Commissioner of Taxation (2013) 87 ATR 996
Re A Taxpayer and Commissioner of Taxation [2004] AATA 398
Re HSJW and Commissioner of Taxation [2017] AATA 1906
Re JWTT and Commissioner of Taxation [2015] AATA 587
Re JWTT and Commissioner of Taxation [2017] AATA 1612
Swineburne v David Syme & Co [1909] VLR 550
TNT Skypak International (Aust) v Federal Commissioner of Taxation (1988) 19 ATR 1067
Trautwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63
X7 v Australian Crime Commission [2013] HCA 29REASONS FOR DECISION
Ms G Lazanas, Senior Member
17 July 2019
The applicant in these proceedings is referred to by the pseudonym, Byron Pty Ltd, or simply as the Company or the taxpayer, as it asked for a private hearing in relation to its application for review with respect to its GST dispute. I have also used pseudonyms for related entities as well as the witness who gave evidence in these proceedings, to preserve the taxpayer’s confidentiality.
The Company challenged the objection decisions of the respondent Commissioner of Taxation regarding its objections to certain GST assessments and notices of administrative penalty. The Company says it is entitled to claim input tax credits (ITCs) in the sum of $349,350 for purchases of vehicles and equipment it says it made in three quarterly tax periods ending 30 June 2014, 30 September 2014 and 31 December 2014 (Relevant Tax Periods). The Company primarily relies on the wide ambit of the concepts of “supply”, “acquisition” and “consideration” in the A New Tax System (Goods and Services Tax) Act1999 (Cth) (GST Act) to support its position that it made the creditable acquisitions, most of which it claimed to have made from a related entity. The Commissioner audited the Company and determined it did not make creditable acquisitions. The Commissioner says the vendor of the vehicles and equipment, which was a related entity, was not able to on-sell the vehicles and equipment and thereby make a taxable supply to the Company because that related entity wasn’t the lawful owner of those assets. Consequently, the Company did not make creditable acquisitions. Additionally, the Commissioner says the Company didn’t have the capacity to pay for the vehicles and equipment and did not provide consideration nor was it liable to provide consideration. The Commissioner also imposed on the Company an administrative penalty for recklessness at the rate of 50% of the shortfall amount.
The key GST issue for determination by the Tribunal is whether the Company is entitled to claim the ITCs. The determination of that issue depends, in this case, on whether the Company made the acquisitions it claimed to have made and, if so, whether those acquisitions are creditable acquisitions. There were numerous other issues raised, including whether the taxpayer was carrying on an enterprise, whether the taxpayer met the creditable purpose test in claiming all of the ITCs, how the attribution rules in the GST Act apply to its ITC claims, and the validity of the tax invoices it received. It is unnecessary to address those other GST issues because of the conclusion reached. It is also unnecessary to address the potential application of Division 165 of the GST Act, being the general anti-avoidance provision, because of the conclusion reached. However, for completeness, it is noted the Commissioner hadn’t actually issued a Division 165 declaration to the Company but urged the Tribunal to do so based on a number of different possible schemes which he articulated in his Further Amended Statement of Facts, Issues and Contentions filed on 13 July 2017. The applicability of Division 165 in such circumstances should await a decision where it is appropriate to consider the operation of that Division as to the efficacy of particular arrangements.
The factual details of the arrangements concerning the taxpayer, such as they were before the Tribunal, were sketchy and unreliable and, significantly, there was no written sale agreement nor evidence of the terms of any oral agreement about the supply and acquisition of the vehicles and equipment in question. The individuals who could have probably shed light on the agreement (if any) and what any payments made by the Company were for, did not give evidence in these proceedings. In all the circumstances, I am not persuaded that the Company is entitled to claim the ITCs as it failed to discharge the burden of proving that the assessments issued to it were excessive and what the assessments of net amounts for the Relevant Tax Periods should be, as required by s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA). I am also not persuaded that the administrative penalties imposed by the Commissioner at the rate of 50% on the basis of recklessness should be disturbed.
A separate issue arose with respect to a confidentiality order made by the Tribunal after the hearing. Specifically, the Commissioner took issue with the breadth of the confidentiality order that was made regarding the evidence given by the taxpayer’s only witness, which was over and above the order regarding a private hearing pursuant to s 14ZZE of the TAA. The Commissioner asked the Tribunal to revoke that specific confidentiality order. I have decided that it is appropriate to do so in all the circumstances, for the reasons set out below.
Notwithstanding the sequence in which the issues arose and were argued before me, it is preferable to first address the dispute between the parties about the confidentiality order followed by the GST issues and administrative penalty.
BACKGROUND TO CONFIDENTIALITY ORDER AND ISSUES ARISING
The events concerning the confidentiality order made are somewhat unusual and it is appropriate, therefore, to set out the relevant factual background in some detail before discussing the application of the law and the competing interests of the parties.
At the beginning of the hearing regarding the application for review about the GST dispute, the Company asked for a private hearing pursuant to s 14ZZE of the TAA. I indicated at that time that, as the taxpayer is entitled to a private hearing as of right, I would make an order to that effect. Consistent with that order, the only persons who were permitted to remain in the hearing room were the parties, the taxpayer’s witness, and the representatives of the parties.
I also enquired at that time whether it was appropriate to make any additional order as to the confidentiality of any witness. After counsel for both the taxpayer and the Commissioner sought instructions, counsel for the taxpayer stated that there was no need for a confidentiality order with respect to the witness as their name wouldn’t disclose the identity of the taxpayer.[1] The Commissioner’s counsel stated that there was no objection from the Commissioner.[2] I understood the Commissioner’s position to mean he had no objection to confidentiality for the name of any witness. Afterwards, as set out below, the taxpayer adopted a different position.
[1] Transcript P-3.
[2] Transcript P-3.
Only one witness gave evidence for the taxpayer during the hearing of the substantive GST dispute, comprised of two written statements and oral evidence. That witness is referred to by the pseudonym, Mr Derek Joseph.
As set out further below in relation to the substantive GST issues before the Tribunal, Mr Joseph’s evidence was vague, and he was unable to give any meaningful explanation about the GST issues even though he was subjected to considerable scrutiny about his involvement with the taxpayer. It also became evident that Mr Joseph had no forewarning as to the Commissioner’s lines of cross-examination, including about Mr Joseph’s prior criminal conviction for offences of dishonesty and his disqualification from managing a company. Significantly, for present purposes, Mr Joseph had no separate legal representation nor was he apparently aware of the right to refuse to answer questions that might potentially incriminate him.
It suffices to record, without spelling out the specific lines of enquiry that were pursued by counsel for the Commissioner during cross-examination, that Mr Joseph initially answered questions without hesitation and before anyone in the hearing was able to intervene and caution him that he could choose to not answer questions that invited him to potentially incriminate himself. After a short adjournment was taken so that he could be properly informed by counsel for the taxpayer about his legal right to refuse to provide potentially incriminating answers, Mr Joseph subsequently chose to answer some questions and declined to answer others by then asserting the privilege against self-incrimination.
Following the conclusion of the hearing regarding the GST dispute, I made written orders in the following terms on 4 September 2017:
1. The applicant having requested, pursuant to s 14ZZE of the Taxation Administration Act 1953 (Cth), that the hearing be in private, the Tribunal DIRECTS that the hearing is to be conducted in private.
2. For the avoidance of doubt and in furtherance of this direction, the Tribunal FURTHER DIRECTS, pursuant to s 35(3) of the Administrative Appeals Tribunal Act 1975 (Cth), that, save with the leave of the Tribunal and with the exception of Tribunal staff or those engaged by the Tribunal to record proceedings, no person may publish the name of the applicant or any information tending to reveal the identity of the witness in the proceedings.
The above orders were sent by Tribunal staff to the parties by email on 11 September 2017. Order 1 reflects the taxpayer’s request pursuant to s 14ZZE of the TAA that the proceeding be heard in private, as referred to above. Order 2, referred to as the Confidentiality Order in these reasons, was made by me upon reflection of what had transpired at the hearing, as summarised above and was expressed in terms consistent with s 35(3)(a)(i) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) (see [21] below). I was satisfied at that time that it was appropriate to make that order and I was also satisfied that the Tribunal was not required to seek the views of the parties, consistent with the express terms of s 35(5) of the AAT Act (see [21] below).
The legal representatives for the taxpayer must have had some concerns with Mr Joseph’s oral evidence. On 6 September 2017, and without having yet been informed about the Confidentiality Order made by the Tribunal on 4 September 2017, the applicant’s legal representatives wrote to the Commissioner seeking his consent to approach the Tribunal for proposed orders pursuant to s 35 of the AAT Act. The proposed orders were in the following terms:
The Tribunal orders that:
(a) The publication of other disclosure of information tending to reveal the identity of the witness Mr [X] (the witness) and information otherwise concerning the witness be prohibited and restricted to the parties to the proceedings and the Tribunal for the purposes of the proceedings; and
(b) The publication of other disclosure of the evidence of the witness and information about the evidence of the witness be prohibited and restricted to the parties to the proceedings and the Tribunal for the purpose of the proceedings.
On 8 September 2017, the Commissioner, also unaware of the Confidentiality Order made by the Tribunal on 4 September 2017, wrote to the taxpayer’s legal representatives asking for an explanation of the grounds on which the taxpayer sought the proposed confidentiality orders, referred to immediately above.
On 19 September 2017, the taxpayer’s legal representatives wrote to the Commissioner stating that, “having reviewed the terms of the orders made and circulated by the Tribunal recently, we no longer press for further confidentiality orders”.
On 20 September 2017, the Commissioner wrote to the Tribunal referencing the abovementioned events and asking for an opportunity to be heard in relation to the Confidentiality Order made by the Tribunal on 4 September 2017 under s 35 of the AAT Act.
A hearing was subsequently held in relation to the appropriateness of the Confidentiality Order. Counsel for the Commissioner explained at that hearing that the Commissioner had no issue with the non-publication or anonymising of the name of the witness in the reasons for decision, but challenged the Confidentiality Order to the extent that it limited the use of the evidence given in the hearing. That is, the Commissioner was concerned as to the practical effect of the Confidentiality Order in that it relevantly provided that, except with the leave of the Tribunal, no person may publish any information tending to reveal the identity of the witness in the proceedings and so quarantined his testimony from being utilised by the Commissioner or any other person.
The key issue for determination by the Tribunal with respect to the Confidentiality Order is whether it is appropriate, having regard to the competing interests of the parties, as well as the interests of the witness, to now revoke the Confidentiality Order.
THE LEGISLATIVE FRAMEWORK AND RELEVANT PRINCIPLES REGARDING CONFIDENTIALITY ORDERS
Section 35 of the AAT Act relevantly provides:
Section 35 - Public hearings and orders for private hearings, non-publication and non-disclosure
Public hearing
(1) Subject to this section, the hearing of a proceeding before the Tribunal must be in public.
Private hearing
(2)The Tribunal may, by order:
(a) direct that a hearing or part of a hearing is to take place in private; and
(b) give directions in relation to the persons who may be present.
Orders for non-publication or non-disclosure
(3)The Tribunal may, by order, give directions prohibiting or restricting the publication or other disclosure of:
(a) information tending to reveal the identity of:
(i)a party to or witness in a proceeding before the Tribunal; or
(ii)any person related to or otherwise associated with any party to or witness in a proceeding before the Tribunal; or
(b) information otherwise concerning a person referred to in paragraph (a).
(4)The Tribunal may, by order, give directions prohibiting or restricting the publication or other disclosure, including to some or all of the parties, of information that:
(a) relates to a proceeding; and
(b) is any of the following:
(i)information that comprises evidence or information about evidence;
(ii)information lodged with or otherwise given to the Tribunal.
(5)In considering whether to give directions under subsection (2), (3) or (4), the Tribunal is to take as the basis of its consideration the principle that it is desirable:
(a) that hearings of proceedings before the Tribunal should be held in public; and
(b) that evidence given before the Tribunal and the contents of documents received in evidence by the Tribunal should be made available to the public and to all the parties; and
(c) that the contents of documents lodged with the Tribunal should be made available to all the parties.
However (and without being required to seek the views of the parties), the Tribunal is to pay due regard to any reasons in favour of giving such a direction, including, for the purposes of subsection (3) or (4), the confidential nature (if applicable) of the information.
Section 14ZZE of the TAA provides:
Section 14ZZE - Hearings before Tribunal to be held in private if applicant so requests
Despite section 35 of the AAT Act, the hearing of a proceeding before the Tribunal for:
(a) a review of a reviewable objection decision; or
(b) a review of an extension of time refusal decision; or
(c) an AAT extension application;
is to be in private if the party who made the application requests that it be in private.
Section 14ZZJ(2) modifies s 43 of the AAT Act, which pertains to the Tribunal’s duty to give reasons for its decision, by providing that s 43 should be read as if it included the following subsection:
(2D) If:
(a) a hearing of a proceeding for the review of a decision or an AAT extension application is not conducted in public; and
(b) a notice of appeal has not been lodged with the Federal Court;
the Tribunal must ensure, as far as practicable, that its reasons for the decision are framed so as not to be likely to enable the identification of the person who applied for the review.
In Brown v Federal Commissioner of Taxation (2001) 47 ATR 143 (Brown), Emmett J considered the interrelationship between s 14ZZE of the TAA and s 35 of the AAT Act as then in force (noting that the current form of s 35 is not materially different, albeit the paragraph numbering has changed). His Honour said (at [10]), in relation to the section, as it then stood:
Parliament has conferred an express right on parties to certain taxation matters before the Tribunal to have the hearing in private. It does not confer any express right for a party to have the publication of evidence before the Tribunal prohibited or restricted. On the other hand, having regard to the terms of s 14ZZE, it would be a most unusual case where the Tribunal, if asked, did not give the directions that are contemplated by s 35(2) in a proceeding to which s 14ZZE applies. The Tribunal is empowered to give such directions for any reason, where it is satisfied that it is desirable to do so. Where a party exercised the right, under s 14ZZE, to have a hearing in private, that would be a very cogent reason for the Tribunal to make an order under s 35(2)(b).
It is well established that the appropriateness of the Tribunal making confidentiality orders providing for the non-publication or non-disclosure of evidence given before or lodged with the Tribunal pursuant to ss 35(3) or 35(4) of the AAT Act involves the exercise of a discretionary power having regard to the principle in s 35(5) and any other relevant circumstances (see [21] above). Invariably, that discretion entails a careful balancing of competing interests. For example, in Re Applicants and Federal Commissioner of Taxation (2013) 87 ATR 996, Deputy President Deutsch referred to various authorities, including Brown, and decided the balancing exercise called for, in that case, the Tribunal weighing up the public interest in transparency against the prejudice that would result to the applicant in the event that the requested confidentiality orders were not made (at [13]). Deputy President Deutsch decided that, on the facts of the case before him, it would be an unacceptable outcome if the taxpayer was prevented from properly pursuing his tax case unless he compromised aspects of his defence of criminal proceedings, so that the confidentiality orders were justified. However, the Tribunal’s order for non-disclosure and non-publication was quashed by the Federal Court on the basis that the Tribunal, in that case, did not consider the Commissioner’s submission that the taxpayers were entitled to claim the privilege against self-incrimination: Federal Commissioner of Taxation v Pham& Ors [2013] FCA 579 per Katzmann J at [33] (Pham). See also the decision of Deputy President McCabe in Re HSJW and Commissioner of Taxation [2017] AATA 1906 at [15]–[19] for a general discussion of the Tribunal’s discretionary power to make confidentiality orders pursuant to s 35 of the AAT Act.
The Commissioner submitted as follows in support of the revocation of the Confidentiality Order in the present proceedings. First, s 14ZZE of the TAA provides adequate protection for the taxpayer in that the reasons for decision following a private hearing can be appropriately written so as not to refer to the identity of the taxpayer or, by implication, the identity of the witness, to the extent the latter may also reveal the identity of the taxpayer. In this regard, the Commissioner did not object to the name of the witness being anonymised in the reasons for decision, consistent with his earlier position at the hearing of the GST dispute.
Secondly, the Commissioner contended there is a public interest in securing compliance with the law and prosecuting individuals who breach the law and this outweighs an individual’s interest in avoiding prosecution for conduct that might constitute a breach of the law. In this regard, the Commissioner relied on Re A Taxpayer and Commissioner of Taxation [2004] AATA 398 (Re A Taxpayer), a decision of Senior Member McCabe, as he then was, where he declined to make an order under the former s 35 of the AAT Act as regards the evidence of a witness. The witness in that case was an officer of the company taxpayer and refused to give evidence unless he received assurances in the form of a confidentiality order that his evidence would not be disclosed to prosecutors who had already preferred charges against him. After noting that the officer’s interests probably converge with those of the taxpayer, the Tribunal stated that the officer’s interests must nonetheless be considered separately. The Tribunal then held at [23] as follows:
I am not satisfied the officer’s interests on their own justify the order. His interest extends to avoiding prosecution for conduct that might constitute a breach of the law. That interest cannot outweigh the public interest in securing compliance with the law, and prosecuting individuals who breach the law. If an order is to be made, it will be the applicant’s interests that weigh most heavily.
Thirdly, the Commissioner argued there is a public interest in the protection of the revenue and the Commissioner’s ability to properly discharge his statutory function. The Commissioner submitted that, if the Confidentiality Order made by the Tribunal remained in place, the Commissioner would arguably be hindered and unable to deploy the information gleaned from the proceedings as to what the witness said he did during the relevant period with respect to other taxpayers that were related to Byron Pty Ltd. While the Commissioner did not elaborate as to what those disputes were, the taxpayer’s factual matrix suggests that there were likely other tax disputes with related entities of the taxpayer. The public interest in protecting the revenue and the Commissioner being able to properly perform his statutory function was also referenced in the Tribunal’s decision in Re A Taxpayer at [34] and articulated, as follows:
It is asking the Tribunal to prevent the regulator from doing his job. That would embarrass the Commissioner in the performance of his duties. He cannot be expected to un-know what he may learn in the hearing. … An order in those terms would undermine the confidence of the public in the administration of justice.
Fourthly, the Commissioner drew attention to the case of Investrix Pty Ltd v Commissioner of Taxation [2015] FCA 1427, where Robertson J accepted as correct the analysis of the Tribunal constituted by Deputy President Frost in Re JWTT and Commissioner of Taxation [2015] AATA 587 (JWTT No 1), in particular, with reference to the fact that the witness in those proceedings was giving evidence on a voluntary basis and not under compulsion. Deputy President Frost had held there was a fundamental distinction between that situation and the position of the witnesses in the case of X7 v Australian Crime Commission [2013] HCA 29; 248 CLR 92 and the associated cases Lee v New South Wales Crime Commission [2013] HCA 39; 251 CLR 196 and Lee v The Queen [2014] HCA 20; 253 CLR 455 as neither X7 nor Lee had the opportunity to avail themselves of the privilege against self-incrimination and, accordingly, to refuse to answer questions as they were under compulsion to give evidence.
Counsel for the Commissioner submitted that Mr Joseph had similarly voluntarily given evidence in these proceedings, and he was not there under any compulsion. Accordingly, it was unnecessary to give a confidentiality order to prevent compromise of any accusatorial process. Moreover, there was, in any event, no such accusatorial process on foot, which was another reason for concluding that the X7 and Lee lines of authority didn’t apply to the present proceedings.
In supplementary written submissions, counsel for the Commissioner also relied on the decision of the Tribunal constituted by Deputy President McCabe in Re JWTT and Commissioner of Taxation [2017] AATA 1612 (JWTT No 2). Counsel for the Commissioner placed considerable importance on the role of the Tribunal, as explained by Deputy President McCabe in JWTT No 2 at [44]-[45], as follows:
The second point arises out of the statutory role of the Tribunal. I have already noted the Tribunal is not simply concerned with the just resolution of individual disputes. It is also an instrument of good government charged with making the correct or preferable decision. That mission should inform the exercise of all the Tribunal’s statutory powers. At a minimum, the Tribunal should be alive to any implications for public administration that might flow from the exercise of powers in the AAT Act.
Happily, the interests of good government and the interests of individual justice will usually coincide. But they will not do so in every case. There are hard cases where the imperatives of public administration and the concerns of individual justice point in different directions. There is a natural temptation to favour the individual in those hard cases. Yet if hard cases make for bad law, they can make for terrible public administration. The Tribunal must be prepared to take a broader view and exercise its powers (or decline to exercise them) in a way that leads to a hard outcome for an individual applicant if that is the correct or preferable decision in all the circumstances.
Counsel for the Commissioner also relied on JWTT No 2 for highlighting the problems with approaching s 35 of the AAT Act as a way of providing protection to a witness analogous to that which would arise in Court proceedings under s 128 of the Evidence Act 1995 (Cth). Deputy President McCabe in JWTT No 2, after referring to the decision of the Federal Court in Pham, stated at [51] as follows:
The reasoning in that decision points to a difficulty. The taxpayer is asking for confidentiality orders under s 35, but in substance it wants to achieve something quite different. It wants use immunity. As I have already explained, the powers of an administrative tribunal may not extend that far. The power to give certificates under s 128 of the Evidence Act supplemented by confidentiality orders might be one of the important differences between proceedings in the Tribunal and an application for review in the Federal Court.
On the other hand, counsel for the taxpayer submitted that the Confidentiality Order made by the Tribunal pursuant to s 35 of the AAT Act was necessary because the automatic anonymity afforded to the taxpayer by s 14ZZE of the TAA would be lost if the Commissioner were permitted to disclose the evidence of the witness and his name. As already noted above, this position was different to that adopted by the taxpayer at the beginning of the hearing and before the evidence was given by Mr Joseph.
Counsel for the taxpayer also argued that the confidentiality orders sought in JWTT No 1 and JWTT No 2 were broader than the Confidentiality Order in these proceedings, and that the Tribunal had readily acknowledged in JWTT No 1 at [51] the possibility of making narrower confidentiality orders in relation to “specific information or evidence” and, furthermore, that it was considered appropriate in JWTT No 1 at [34] to deal with that question “when the relevant material is taken into evidence at the hearing”. In other words, having heard the evidence of the witness (Mr Joseph), it was appropriate for the Confidentiality Order to be made by the Tribunal in relation to information provided by the witness. The taxpayer was satisfied that order 2 made by the Tribunal on 4 September 2017, following the hearing regarding the GST dispute, was apt in all the circumstances.
Counsel for the taxpayer also argued that unlike the position pertaining in JWTT No 1 and JWTT No 2 where investigations by various regulatory bodies were on foot, in this case, the Commissioner sought to justify the revocation of the Confidentiality Order made by the Tribunal for speculative purposes, such as future potential disputes with related parties to the Company where Mr Joseph may again be a witness. Counsel for the taxpayer suggested the Commissioner could in the future approach the Tribunal for leave to use the information if he chose to do so and should not be given an evidential shortcut that, in the meantime, risked the taxpayer’s right to a private hearing and confidentiality to which it was automatically entitled.
Counsel for the taxpayer also submitted the fact the witness lacked independent legal advice is a critical factor that constitutes a public interest consideration that weighs in favour of the Confidentiality Order being maintained. This is because the maintenance and preservation of the privilege against self-incrimination would otherwise be eroded. Moreover, it was clear from the transcript of the hearing regarding the GST dispute, that upon learning of his entitlement to the privilege, Mr Joseph subsequently asserted the privilege in not answering certain questions.
The witness, Mr Joseph, was separately represented at the hearing in relation to the Confidentiality Order and his counsel also advocated that order 2 made by the Tribunal on 4 September 2017 should be maintained. As well as relying on the arguments made by counsel for the taxpayer, Mr Joseph’s counsel sought to distinguish Mr Joseph’s position from that of the witnesses in Re A Taxpayer and in JWTT No 1 and JWTT No 2, primarily on the basis that Mr Joseph was not an officer of the taxpayer or one of its privies, nor was he a professional advisor who had obtained his own legal advice. He came to the Tribunal to provide evidence voluntarily to assist the taxpayer in its GST dispute. Mr Joseph was also unaware of the right to claim privilege against possibly incriminating himself.
SHOULD THE CONFIDENTIALITY ORDER MADE BY THE TRIBUNAL BE REVOKED?
This is one of those hard cases where the imperatives of public administration and the interests of individual justice point in different directions, as evident from the respective submissions of the parties and of the witness referred to above: cf JWTT No 2 at [45]; see [31] above. I have decided that the correct or preferable decision in all the circumstances is for order 2 made by the Tribunal on 4 September 2017 regarding confidentiality as to the name of the witness and the evidence of the witness be revoked because it could interfere with the Commissioner’s functions and responsibilities.
I was persuaded by the Commissioner that the JWTT No 1 and JWTT No 2 decisions, in particular, point to the important and powerful interests that weigh against the individual interests of the taxpayer and the witness in this case. Those interests include the proper administration of justice, protecting the revenue and allowing the Commissioner to perform his statutory functions. Moreover, the Commissioner should not be put to the expense or inconvenience of having to ask for leave from the Tribunal in the future, if he chooses to use the information provided by the witness. I have considered that there is no accusatorial process in progress as well as the fact that the Commissioner averted to the possibility of other taxation litigation with related entities of the taxpayer.
Notwithstanding the decision to revoke order 2 made by the Tribunal on 4 September 2017, I also consider it appropriate to continue to refer to the witness in the reasons for decision in these proceedings by the pseudonym Mr Joseph, in order to preserve the privacy of the taxpayer’s hearing as is the taxpayer’s right. I was satisfied that the cross-examination of Mr Joseph’s involvement with the taxpayer and other entities could potentially reveal the identity of the taxpayer and compromise the taxpayer’s anonymity. This approach is entirely consistent with the taxpayer’s statutory right to a private hearing pursuant to s 14ZZE of the TAA and to the reasons for decision being framed so as not to be likely to enable the identification of the taxpayer, pursuant to s 14ZZJ(2D) of the TAA. The Commissioner correctly accepted that it was appropriate to protect the privacy of the taxpayer in circumstances where it had sought a private hearing and did not object to this course of action.
In reaching the decision to revoke order 2 that was previously made following the hearing, I acknowledge that the present case is distinguishable from JWTT No 1 and JWTT No 2 in that the witness here was not legally represented and gave evidence without being aware of his right to refuse to answer potentially incriminating questions. This was also a case where the Confidentiality Order was made after the evidence was given and one where consideration could be given to making a confidentiality order in relation to specific information. Significantly, however, I also gleaned from the various submissions made at the hearing about the Confidentiality Order (which followed the hearing about the GST dispute), that the taxpayer and the witness were probably more concerned with protecting the evidence provided by the witness, that is, quarantining the use of that evidence, as distinct from the privacy of the taxpayer. However, it must also be remembered, this is a case where the Company was prepared to put Mr Joseph forward as its only witness in the review proceedings where it must have known Mr Joseph had no or very little involvement in the taxpayer’s operations. Accordingly, the Company must have known about the likelihood that Mr Joseph’s evidence would be of limited assistance to the Tribunal. It is plainly improper for a party and or a witness to effectively seek complete immunity, through non-publication and non-disclosure orders, in relation to questionable evidence given in Tribunal proceedings.
I have also considered the fact that Mr Joseph gave his evidence voluntarily and, therefore, willingly participated in the taxpayer’s litigation. The fact that Mr Joseph was caught by surprise and uncomfortable about questions asked by counsel for the Commissioner was a by-product of skilful cross-examination and diligent research about the witness. I have further considered the fact that Mr Joseph’s predicament could probably not have been avoided by him having obtained legal advice beforehand about his right to refuse to give potentially incriminating answers, once he chose to give evidence in these proceedings.
I turn now to the GST dispute between the parties and set out, firstly, the central legislative provisions and relevant principles, followed by the factual matrix (to the extent it was possible to glean this from the materials before the Tribunal) and the analysis of the issues.
THE LEGISLATIVE PROVISIONS AND RELEVANT PRINCIPLES REGARDING THE GST DISPUTE
The legislative provisions that are specifically raised by the issues in this case are the specific provisions of the GST Act, as set out below. For simplicity, I have omitted the notes and examples and set them out in their form at the relevant time. Some of the terms below have an asterisk which indicate they are defined terms in the GST Act, although not all defined terms are asterisked. Where appropriate, the defined terms are also set out below.
7-1 GST and ITCs
(1)GST is payable on *taxable supplies and *taxable importations.
(2)Entitlements to ITCs arise on *creditable acquisitions and *creditable importations.
9-5 Taxable supplies
You make a taxable supply if:
(a) you make the supply for *consideration; and
(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c) the supply is *connected with Australia; and
(d) you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST‑free or *input taxed.
9-10 Meaning of supply
(1) A supply is any form of supply whatsoever.
(2) Without limiting subsection (1), supply includes any of these:
(a) a supply of goods;
(b) a supply of services;
(c) a provision of advice or information;
(d) a grant, assignment or surrender of *real property;
(e) a creation, grant, transfer, assignment or surrender of any right;
(f) a *financial supply;
(g) an entry into, or release from, an obligation:
(i)to do anything; or
(ii)to refrain from an act; or
(iii)to tolerate an act or situation;
(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).
(3)It does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply.
…
9-15 Consideration
(1)Consideration includes:
(a) any payment, or any act or forbearance, in connection with a supply of anything; and
(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
…
11-5 What is a creditable acquisition?
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a *creditable purpose; and
(b) the supply of the thing to you is a *taxable supply; and
(c) you provide, or are liable to provide, *consideration for the supply; and
(d) you are *registered, or *required to be registered.
11-10 Meaning of acquisition
(1)An acquisition is any form of acquisition whatsoever.
(2)Without limiting subsection (1), acquisition includes any of these:
(a) an acquisition of goods;
(b) an acquisition of services;
(c) a receipt of advice or information;
(d) an acceptance of a grant, assignment or surrender of *real property;
(e) an acceptance of a grant, transfer, assignment or surrender of any right;
(f) an acquisition of something the supply of which is a *financial supply;
(g) an acquisition of a right to require another person:
(i)to do anything; or
(i)to refrain from an act; or
(ii)to tolerate an act or situation;
(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).
...
11-15 Meaning of creditable purpose
(1)You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.
(2)However, you do not acquire the thing for a creditable purpose to the extent that:
(a) the acquisition relates to making supplies that would be *input taxed; or
(b) the acquisition is of a private or domestic nature.
…
11-20 Who is entitled to input tax credits for creditable acquisitions?
You are entitled to the input tax credit for any *creditable acquisition that you make.
The relevant administrative penalty provisions in the TAA are set out later in these reasons.
THE FACTUAL BACKGROUND AND EVIDENCE RELEVANT TO THE GST DISPUTE
The following findings of fact are based on the T-Documents, the respective Amended Statements of Facts, Issues and Contentions of the parties, and the written and oral evidence of Mr Joseph who was the only witness at the hearing. As noted above, Mr Joseph is a pseudonym.
The Company’s enterprise
The Company was incorporated in early June 2014. Its registered office and principal place of business is recorded as an address in Queensland which is a residential property owned by Mr Don Byron and his wife, Mrs Donna Byron (being pseudonyms). The Company claimed to be engaged in the business of construction material crushing, as well as quarrying services including machine hire, but whether any such activities were occurring in the Relevant Tax Periods remains a mystery. The Company says it was “carrying on” an “enterprise” for GST purposes, in accordance with the meaning of those terms in ss 195-1 and 9-20 of the GST Act. This is where “carrying on” an enterprise includes doing anything in the course of the commencement or termination of the enterprise, and “enterprise” is an activity, or series of activities done, relevantly, in the form of a business.
The Commissioner disputed the Company’s assertion that it was “carrying on” an “enterprise”, even adopting the extended meaning of those expressions in the GST Act, at the relevant time. The Commissioner raised this issue in his Further Amended Statement of Facts, Issues and Contentions which was filed on 13 July 2017. The Commissioner also submitted at the hearing that the Company was not carrying on an enterprise and, therefore, not entitled to claim ITCs as any acquisitions were not made in the course of it carrying on an enterprise, but the Commissioner had not cancelled the GST registration of the Company (cf s 25-55(2) of the GST Act). It is unnecessary because of the conclusion reached to further explore whether the Company was in fact carrying on an enterprise in the Relevant Tax Periods and whether the Commissioner ought to have taken action to cancel the GST registration of the Company.
The Company’s directors
During the Relevant Tax Periods, the directors of the Company were Mr Isaac Snowden (a pseudonym) from 11 June 2014 to 1 September 2015 and Mr Robert Byron (a pseudonym) from 10 June 2014 to 4 July 2014. Mr Don Byron was appointed a director of the Company on 1 September 2015 (that is, after the Relevant Tax Periods in issue). He had previously been a director of the Company for one day on 4 July 2014. None of the directors of the Company (or for that matter of any other related company) gave evidence in these proceedings, although it is noted Mr Isaac Snowden had filed a written statement, but this was not relied on at the hearing. Mr Snowden was apparently also a partner of the accounting firm that was engaged by the Company as its registered tax agent.[3] The Company had taken steps to contact and procure Mr Snowden’s attendance to give oral evidence, but those attempts were unsuccessful.[4]
[3] T23-259.
[4] Transcript P-5.
The Company’s GST registration, tax periods and method of accounting
On 9 June 2014, the Company became registered for GST and reported on a non-cash (accruals) basis. The tax periods that applied to the Company for GST purposes were quarterly tax periods ending on 31 March, 30 June, 30 September and 31 December.
The evidence of Mr Joseph (a pseudonym)
Mr Joseph filed two written statements, one of them dated 11 August 2017 and the second one dated 31 August 2017. In his first statement, Mr Joseph stated he was employed as the “general manager” of the Company and its group of companies at about the beginning of June 2014 and was the Company’s general manager at the date of his statement, but, as discussed further below, this was incorrect. He said his role predominantly involved performing duties associated with the day to day operational management of the business of the Company, but he did not elaborate on his tasks. As the general manager, he said he had access to the books and records of the Company. Mr Joseph also said “[i]n the period of June to November 2014 the Applicant was preparing for, and therafter (sic) was in the business of, leasing and hiring out construction, quarrying and mining machinery”.[5]
[5] Exhibit A1 – Witness Statement of Mr Joseph dated 11 August 2017, paragraph 7.
In his second statement, Mr Joseph stated that prior to becoming the general manager of the Company in 2014, he was the operations manager for approximately two years at Ly Investments Pty Ltd (Ly Investments), a pseudonym. Mr Joseph stated Ly Investments was predominantly a private equity firm which invested in real estate or mining companies. Mr Joseph was at all relevant times working and residing in New South Wales, not Queensland where the Company had its registered office. Mr Joseph stated the Company had transferred its back-office duties to be performed by him, as its general manager, in Sydney.
Mr Joseph stated the Company was part of a group of entities referred to in these reasons as the Byron Group (a pseudonym), based predominantly in Queensland. The Byron Group included Byron Trustee Pty Ltd as trustee for the Byron Trust (Byron Trust), being another pseudonym. The Byron Trust was a separate entity for GST purposes, which had registered for GST in September 2011.
Mr Joseph explained that, initially, ownership of the various assets used to further the businesses of the Byron Group was spread over the different entities in the Byron Group. He said this caused confusion between the entities and there were concerns that mistakes may be made in terms of registration of the assets with the Queensland Department of Transport and Main Roads.[6] Mr Joseph also stated that an entity in the Byron Group had entered into a contract with a public mining company. In order for the Byron Group entities to perform their contractual obligations for that mining company, further equipment and vehicles were required to be purchased but that was not able to be easily done. Mr Joseph was aware that Mr Don Byron and Mr Robert Byron (see [47] and [49] above) both had defaults listed on their personal credit reports and some Byron Group entities also had delinquent credit ratings. Therefore, the Byron Group entities had no alternative but to source finance from private investors rather than traditional lenders, to buy the requisite vehicles and equipment.[7]
[6] Exhibit A1, paragraph 9.
[7] Exhibit A1, paragraph 13.
Mr Joseph stated Ly Investments was willing to provide finance to the Byron Group entities and this was discussed at a meeting he attended in mid May 2014 in Sydney.[8] However, Ly Investments imposed certain conditions which included that all of the vehicles and equipment held by the Byron Group entities had to be consolidated into one asset holding entity, so as to facilitate the registration of a security interest over the relevant assets.[9] Consequently, to fulfil this condition, Mr Joseph stated the Company was established as a new vehicle for it to own all the assets.
[8] Exhibit A1, paragraphs 14 and 15.
[9] Exhibit A1, paragraphs 16 and 17.
Mr Joseph further claimed that once the finance was obtained by the Byron Group entities from Ly Investments, the Company then purchased between 58 and 60 vehicles and equipment items for a total value of about $3.7 million.[10] He stated the vehicles and equipment were purchased by the Company from the related entity, the Byron Trust. The Byron Trust had earlier purchased the said assets from various other Byron Group entities, pursuant to four Deeds of Sale and Assignment, apparently executed sometime in 2011. Clearly, the Company was not party to the Deeds as it was not in existence at that time. Mr Joseph attached to his first witness statement copies of two tax invoices numbered #152 and #153 dated 30 June 2014 and 1 July 2014 respectively, as proof of the purchases by the Company. He explained that originally the so-called tax invoices were incorrect as the Australian Business Number (ABN) of the Company had also been incorrectly shown as the ABN of the Byron Trust. He said this was later corrected and the tax invoices were re-issued and provided to the Commissioner during the GST audit. There were other curiosities with the tax invoices. The acquisitions totalling $3,720,200 were, according to the express terms of both invoices to be shipped by freight to a PO Box in Queensland. The invoices also stated that payment was required within 90 days but the Company did not make any payment to the Byron Trust nor did it have the financial capacity to do so.
[10] Transcript at P-52.
When Mr Joseph was questioned as to the Company’s financial position and ability to pay for the vehicles and equipment it claimed to have purchased in the sum of approximately $3.7million from the Byron Trust, he unequivocally confirmed the Company “didn’t have any money to pay”.[11] He said it was his understanding there was a loan from the Byron Trust to the Company, but that he was not familiar with the loan arrangement when pressed for the details.[12] He said he was not aware of any internal document to evidence any loan arrangement, or any interest schedule, or any request for payment of any kind between the related entities.[13]
[11] Transcript P-44.
[12] Transcript P-47.
[13] Transcript P-48.
Another alleged precondition to the finance arrangement between Ly Investments and the Company was that Mr Joseph be appointed as general manager of the Company.[14] However, whilst stating in his sworn statements that he was the general manager of the Company during the Relevant Tax Periods (as noted in [51]-[52] above), it transpired in the course of his cross-examination that this was not the case and he was never the general manager of the Company.[15] Mr Joseph attempted to explain his predicament by suggesting he was the general manager of the Byron Group entities. But there were difficulties with this response because the tax returns filed by Mr Joseph for the financial years ended 30 June 2014, 2015 and 2016 produced by the Commissioner at the hearing, indicated that Mr Joseph was in fact employed by other companies as well as Ly Investments in those years.[16] Mr Joseph did not provide details of the other companies listed on his tax returns although, at one stage, he suggested they were entities in the Byron Group but without any further clarification. This was the start of a very strained cross-examination, as set out further below.
[14] Transcript P-21.
[15] Transcript P-32, P-38.
[16] Transcript P-56, see also Exhibits R1 and R2.
It emerged during Mr Joseph’s cross-examination, that during the Relevant Tax Periods, the Company did not have any employees,[17] although Mr Joseph had initially stated that he could not recall if the Company had any employees.[18] Mr Joseph claimed to be unsure as to whether the Company had any income from third parties,[19] but later confirmed that there wasn’t any income that was brought in by the Company during the Relevant Tax Periods.[20] Mr Joseph stated that one of the Byron Group entities secured a contract for work to be performed for a public mining company,[21] but he could not point to any documents during the relevant period, or at any time, evidencing that the Company or any other Byron Group entity had such a contract or was attempting to obtain work from any third-party client, let alone a public mining company. On the contrary, documents before the Tribunal, including emails sent to the Commissioner by the Company’s external accountant in March 2015 in relation to the GST audit suggested the Company had not obtained any work by that date. The accountant stated it “will be using all endeavours to find third-party clients, such as Rio Tinto”.[22]
[17] Transcript P-30.
[18] Transcript P-28.
[19] Transcript P-40.
[20] Transcript at P-43 and P-51.
[21] Transcript P-39.
[22] Transcript P-38.
In his second written statement, at paragraph 9, Mr Joseph stated he had located some records relating to some of the vehicles and items of equipment and the third-party financiers.[23] He stated the Company had made payments for the finance that was outstanding on these assets to a list of third-party financiers, including St George Bank, Esanda, Capital Finance Australia Ltd and Westpac. It was his understanding the Company had assumed liability for making the repayments to the third-party financiers which were owed by other Byron Group entities. He stated that the Company had now repaid all the third-party finance outstanding on the assets and any security those financiers had over the assets had been removed.[24] He attached certain bank statements for the Company covering transactions in November, December and January 2014. These showed withdrawals of amounts and payments made through online banking transactions to, amongst others, St George, Capital Finance Australia Ltd, and Westpac.
[23] Exhibit A3 – Witness Statement of Mr Joseph dated 31 August 2017, paragraph 9.
[24] Exhibit A3, paragraph 9.
However, in the absence of further details as to precisely what these payments were for or on whose behalf the payments were made, it was difficult to piece together Mr Joseph’s glib explanation that the Company assumed the liabilities of other Byron Group entities to third party financiers. There was no independent documentation which explained why payments were being made to financing companies and banks. It was also unclear how the Company could make such payments in circumstances where it had no income and there was no independent evidence of any loan to the Company. As set out further below, legal submissions were made about the novation of various contracts and the assumption of liabilities by the Company but it was impossible for these submissions to be tested because the evidentiary base was so lacking. Significantly, there was no document in evidence referencing the novation of contracts, that is, the cancellation of and discharge of the existing rights and obligations of any lender with the repayment of any existing loans and the creation of any new rights and obligations under any new loan contract. The Company acknowledged the lack of documentation in its Amended Statement of Facts, Issues and Contentions asserting as follows, at paragraph 12.1.4, but without providing any support for its assertions:
whilst there may not have been formal novation regarding the encumbrances on the Assets, all parties involved with the encumbrances had accepted the arrangement whereby the Applicant would assume liability for the encumbrances once having acquired the Assets. This supports the position that consideration has passed.
The Company’s BASs
On 19 November 2014, the Company lodged its Business Activity Statement (BAS) for the quarter ended 30 June 2014 claiming ITCs of $162,400 in respect of capital purchases totalling $1,786,400. The Company reported no sales in its BAS and was, therefore, entitled to a net refund of GST.[25] The Company provided to the Commissioner a tax invoice numbered “#152” dated 30 June 2014 issued by the Byron Trust for the sale of numerous vehicles and items of equipment as substantiation for the ITCs claimed by the Company in the June 2014 quarter.
[25] T3-16.
On 6 November 2014, the Company lodged its BAS for the quarter ended 30 September 2014 claiming ITCs of $268,300 in respect of capital purchases totalling $2,951,300. It reported some sales in its BAS, but was entitled to a net refund of GST.[26] In respect of the quarter ended 30 September 2014, the Company provided a tax invoice numbered “#153” dated 1 July 2014 issued by the Byron Trust to the Company for the sale of numerous vehicles and items of equipment.
[26] T4-17.
On 10 April 2015, the Company lodged its BAS for the quarter ended 31 December 2014 claiming ITCs of $13,823 for various acquisitions, including from unrelated entities of lesser value than in the earlier tax periods. It reported more sales in its BAS than in the previous tax periods, but was still entitled to a net refund of GST.[27]
[27] T5-18.
The GST audit and dispute
In January 2015, the Commissioner commenced a GST audit of the Company and its related group of entities, including the Byron Trust which apparently was lodging annual BASs.
On 1 June 2015, the Commissioner issued a notice of amended assessments of net amount for the Relevant Tax Periods in which he relevantly reduced the amount of ITCs claimed by the Company by the following amounts:
Quarter ended
Reduction in ITCs
30 June 2014
$128,900
30 September 2014
$209,300
31 December 2014
$11,150
Total
$349,350
The Commissioner also issued notices of assessment of penalty imposed for each quarter at 50% of the tax shortfall for recklessness. Those administrative penalties totalled $174,675.
The Company lodged an objection, which was disallowed in full by the Commissioner. The Company relevantly stated in its objection, as follows:
(a)it acquired the equipment and vehicles from the Byron Trust;
(a)pursuant to the four Deeds of Sale and Assignment, the Byron Trust was the legal owner of the vehicles and equipment and entitled to sell them to the Company;
(b)the acquisition of the equipment and vehicles by the Company was conducted by way of novation of loans owed to various finance companies from the Byron Trust to the Company; and
(c)the Company had been making payments to unrelated financial institutions in respect of the equipment.
WAS THE COMPANY ENTITLED TO CLAIM THE INPUT TAX CREDITS?
The onus of proof rests squarely on the Company as the taxpayer pursuant to s 14ZZK(b)(i) of the TAA. The Company must show that the assessments issued to it were excessive and, in doing so, prove that it was entitled to claim the ITCs. Section 14ZZK(b)(i) gives rise to what has been described as “a rebuttable presumption of law that an assessment is not excessive”:McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 at 314 (per Jacobs J). That is, the assessments made by the Commissioner are “prima facie right” and “remain right” until the taxpayer shows they are “wrong”: Trautwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63 at 88 (per Latham CJ). Moreover, the Commissioner does not have to show the assessments issued can be sustained or supported by evidence: Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89 (per Mason J). See also the decision of Senior Member O’Loughlin (as he then was) in Re Applicant and Federal Commissioner of Taxation (2013) 94 ATR 965 at 971 [19].
The Company clearly failed to discharge its onus of proof in showing that the assessments for the Relevant Tax Periods are excessive and what the assessments should have been for the purposes of s 14ZZK(b)(i) of the TAA. In particular, there were serious deficiencies in the evidence and material relied on by the Company as to its factual circumstances. Accordingly, I was not persuaded the Company had actually made any “acquisitions” including entering into any agreement to purchase the vehicles and equipment it claimed to have purchased from the Byron Trust. The Company simply failed to put in evidence about things that mattered and gave only a sketchy outline of its claims. As noted above, witnesses who (on the material before the Tribunal) ought to have been in a position to provide probative evidence on the material facts did not give evidence.
As to the evidence given by the only witness, Mr Joseph, this was, at its highest, incomplete, inconsistent and inadequate. The Tribunal was simply unable to accept substantial parts of Mr Joseph’s evidence because he consistently contradicted himself. It also became apparent Mr Joseph had little direct knowledge of the matters to which he deposed, as revealed by his numerous inconsistent statements about the Company’s affairs. Tellingly, he could not point to any contemporaneous document including any email referencing his involvement with the Company throughout the Relevant Tax Periods when asked to do so by counsel for the Commissioner, rendering his evidence as suspect.[28] The various gaps and inconsistencies in Mr Joseph’s evidence confirm he was not a reliable witness, even leaving aside the evidence of his prior misconduct (see [11] above). The following statement of Madden CJ in Swineburne V David Syme & Co [1909] VLR 550 at 565 is apt in all the circumstances: “no Judge and no Tribunal is bound to accept evidence which is in itself inherently improbable and unreasonable, which is hesitating, doubting, shuffling, inconclusive, and unconvincing”.
[28] Transcript P-25, P-31.
Additionally, there was no cogent evidence to corroborate what was said by Mr Joseph as to the alleged agreement between the Byron Trust and the Company as to the sale and purchase of assets. The documentary evidence produced by the Company, especially the tax invoices issued by the Byron Trust, were unreliable and cannot be accepted as evidencing the matters that the documents purported to record. On the other hand, the independent bank statements and remittance notices apparently referencing payments by the Company to third party financiers were singularly unhelpful as there was no contextual explanation from any of the third party financiers.
Even though it is unnecessary to analyse the legal submissions of the parties having regard to the conclusion reached above, it is appropriate to make some brief comments. The Commissioner submitted that the Company is not entitled to the ITCs it claimed in the Relevant Tax Periods as it failed to satisfy the criteria in s 11-5 of the GST Act. The Commissioner stated that while the Company was registered for GST, it had not shown it had made any “acquisitions” as per the definition in s 11-10 of the GST Act during the Relevant Tax Periods. That is, to make a “creditable acquisition” one must first acquire anything (s 11-5(a)). The Commissioner submitted that the Byron Trust did not have legal title to the assets it supposedly supplied to the Company and so it could not be in a position to make a supply of anything to the Company. The Commissioner stated the four Deeds (see [56] above) did not have the legal effect of transferring legal ownership from the legal owners to the Byron Trust and, subsequently to the Company where the Company was not a party to those agreements.
Secondly, even if the Company did make “acquisitions” as per the definition in s 11-10, according to the Commissioner, they were not “creditable acquisitions” for the purposes of s 11-5 of the GST Act as the Company did not provide any ”consideration” for the purchase of the vehicles and equipment it claims to have acquired. This is where “consideration” is defined in s 9-15 to include “any payment… in connection with the supply of anything”. The Commissioner further submitted there wasn’t a valid novation of the mortgages over those assets with the financiers who had charges over them. The Commissioner relied on TNT Skypak International (Aust) v Federal Commissioner of Taxation (1988) 19 ATR 1067 at 1077 where Gummow J relevantly held: “[t]he liabilities could not be assumed in a legal sense by the taxpayer without novations with the creditors involved.” Further, the Commissioner submitted the Company was not liable to provide consideration to the Byron Trust, in accordance with the requirement in s 11-5 to the effect that “[y]ou make a creditable acquisition if: ... (c) you provide, or are liable to provide,*consideration for the supply”. As the Company did not make the creditable acquisitions, it was not entitled to the ITCs: s 11-20.
Thirdly, the Commissioner submitted that the tax invoices on which the Company relied did not substantiate that the things purported to be supplied to it were taxable supplies. Furthermore, of the 60 vehicles and items of equipment purportedly sold by the Byron Trust to the Company and listed in invoices #152 and #153, only 28 of those were identified in the Deeds. There were, in other words, irregularities as to what was claimed to have been supplied to the Byron Trust and, more importantly, by the Byron Trust to the Company. Additionally, in relation to the December 2014 quarterly tax period, the Company failed to substantiate its claim for ITCs for different reasons, including because it did not have valid tax invoices or because it could not demonstrate the acquisitions were for a creditable purpose as per the terms of s 11-15. As to the latter aspect, it appeared that some vehicles claimed to have been purchased by the Company were in fact registered to officers of the Company and being used privately: see s 11-15(2)(b).
The Company’s counsel submitted that the requirements to establish a “taxable supply” set out in s 9-5 of the GST Act do not specify that the supplier must be the owner of the thing supplied, but that the provision relevantly focuses on whether there is a genuine agreement between the supplier and the recipient for the supply of anything for consideration. It was also submitted there is nothing in the definition of “consideration” in s 9-15 that entails ownership but that it is equally broadly defined, like the statutory definitions of “supply” and “acquisition”.
There is considerable merit in the legal arguments of counsel for the Company as to the meaning of “supply”, “acquisition” and “consideration”. Undoubtedly, the definition of “supply” in s 9-10 of the GST Act is extremely broad. Section 9-10(1) expressly states “[a] supply is any form of supply whatsoever” and s 9-10(2) then proceeds with the expression, “[w]ithout limiting subsection (1), supply includes any of these...” to list things which may not even be the subject of ownership or exclusive ownership. It specifically references in paragraph (e) of s 9-10(2) “a creation, grant, transfer, assignment or surrender of any right” and in paragraph (g) of s 9-10(2) “an entry into, or release from, an obligation: (i) to do anything: …” Section 9-10(3) further expands the boundaries of the definition of “supply” by expressly stating, “[i]t does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply”. Furthermore, the High Court stated, as follows, in Federal Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49 (MBI Properties) as to the interpretation of “supply”:
[33] Federal Commissioner of Taxation v Qantas Airways Ltd shows that it is wrong to consider that one transaction must always involve the making of just one supply. It is similarly wrong to consider that the making of a supply must always involve the taking of some action on the part of the supplier.
[34] The concept of supply as employed in the GST Act is of wide import. Absent modification of the general operation of the GST Act through application of a special rule, there is a supply whenever one entity (the supplier) provides something of value to another entity (the recipient). Section 9-10(1), the amplitude of which is highlighted by ss 9-10(2) and 9-10(3), serves to emphasise that the something can be anything and can be provided by any means. The expansive language of ss 9-10(2)(g) and 9-10(3) serves in addition to emphasise that the thing provided can be provided by means of the supplier refraining from acting, or by means of the supplier tolerating some act or situation, just as it can be provided by means of the supplier doing some act.
[35] A transaction which involves a supplier entering into and performing an executory contract will in general involve the supplier making at least two supplies: a supply which occurs at the time of entering into the contract, in the form of both the creation of a contractual right to performance and the corresponding entering into of a contractual obligation to perform; and a supply which occurs at the time of contractual performance, even if contractual performance involves nothing more than the supplier observing a contractual obligation to refrain from taking some action or to tolerate some situation during a contractually defined period.
The issue in MBI Properties was whether in honouring the lease covenants of the lessor, as it was required to do by law, MBI Properties Pty Ltd as the purchaser of real property made input taxed supplies that would give rise to an increasing adjustment for the purposes of Division 135 of the GST Act (being provisions addressing increasing adjustments for a recipient of a supply of a going concern). The High Court held that MBI Properties Pty Ltd did make an input taxed supply, including by tolerating the lessee’s right to quiet use and enjoyment of the premises giving the meaning of “supply” a very expansive interpretation. Therefore, MBI Properties Pty Ltd was liable to an increasing adjustment. In respect of supplies generally, their Honours made the following observations at [36]:
That general observation applies as much to a lease as to another executory contract. There will in general be a supply which occurs at the time of entering into the lease. That supply will involve a grant within the scope of s 9-10(2)(d) combined (as contemplated by s 9-10(2)(h)) with the creation of contractual rights within the scope of s 9-10(2)(e) and with the entry into contractual obligations within the scope of s 9-10(2)(g). There will then be at least one further supply which occurs progressively throughout the term of the lease. That supply will occur by means of the lessor observing and continuing to observe the express or implied covenant of quiet enjoyment under the lease. The thing of value which the lessee thereby receives is continuing use and occupation of the leased premises. The special attribution rule in s 156-5, made applicable to a supply by way of lease by s 156-22, does not alter those aspects of the general operation of the GST Act.
Correspondingly, the meaning of “acquisition” in s 11-10, which mirrors the definition of supply, is equally very broad and it also readily covers things where legal ownership is not required. Rather, applying the High Court’s interpretation, the acquisition could be the acquiring of anything of value received by the recipient, by any means. On the taxpayer’s submission, it was therefore, immaterial whether as a matter of fact the Byron Trust legally owned the assets that it purported to sell to the Company and all that was required was for the Byron Trust to genuinely agree to furnish the assets to the Company so that it had physical possession and or control over the assets.
As to the provision of “consideration” for the supply, counsel for the Company submitted that it had made payments “in connection with” the supply by making payments to the third party financiers. Alternatively, the Company argued it is sufficient for a taxpayer to be liable to provide consideration, as an alternative to actually providing consideration, noting that “consideration” in the context of the GST Act, takes on a wider meaning than contractual consideration and includes any payment “in connection with a supply of anything”: s 9-15. Moreover, counsel argued the Company’s entitlement to claim the ITCs arises (assuming the requirements are satisfied, including the requirement to hold a valid tax invoice in s 29-10(3)) even though the invoice remains unpaid: s 29-10(1)(b) of the GST Act.
As noted above, these submissions had merit but, of course, in the present case, even if it was accepted the Company made payments to third-party financiers on the basis that it practically “assumed” the liabilities of the Byron Trust, the Company failed to demonstrate it made any “acquisitions” from the Byron Trust or that it provided “consideration” or was “liable to provide consideration” for the supply of the assets. There was no evidence of any genuine agreement with Byron Trust for the sale of the assets to the Company, let alone the performance of any such agreement, including as to delivery of the assets. Tax invoices are only important evidentiary documents if they record transactions that have been agreed to and or have actually taken place. I was not satisfied, for the reasons set above, that the Company made “creditable acquisitions”, as it claimed to have done, from the Byron Trust. Accordingly, it is not entitled to claim the ITCs.
WAS THE COMPANY LIABLE TO PENALTIES BASED ON RECKLESSNESS? IF SO, SHOULD ALL OR PART OF IT BE REMITTED?
Division 284 of Schedule 1 of the TAA sets out the administrative penalty regime relevant to the present review. Section 284-75(1) of Schedule 1 of the TAA relevantly provides that a taxpayer will be liable to an administrative penalty if that taxpayer makes a statement to the Commissioner that is false or misleading in a material particular, whether because of things in it or omitted from it. Here, the false or misleading statements are the overstatements in the relevant BASs lodged by the Company of its creditable acquisitions and claims for ITCs.
The Commissioner imposed administrative penalties for the Relevant Tax Periods at 50% of the tax shortfall for recklessness as to the operation of a taxation law: ss 284-80 and 284-90 of Schedule 1 to the TAA. It is for the Company to prove that the penalty assessments are excessive or otherwise incorrect and what the assessments should have been: s 14ZZK(b)(i) of the TAA. The Company failed to discharge the burden of proof and so the assessments remain right.
The Company was reckless in claiming ITCs as it showed a complete disregard or indifference to a risk that was foreseeable by a reasonable person: see Hart v Commissioner of Taxation(2003) 131 FCR 203; [2003] FCAFC 105. The Company was not entitled to claim ITCs in circumstances where it wasn’t clear that the Company had entered into any agreement to acquire assets from a related party, especially as it was highly unlikely this occurred or was even possible. This was because, amongst other reasons, the Company, as the putative purchaser, did not have any financial capacity to pay for the said vehicles and equipment in the sum of approximately $3.7 million.
Further, there are no circumstances under which the penalties imposed should be remitted in full or in part under s 298-20 of Schedule 1 of the TAA.
CONCLUSION
I am satisfied that order 2 made by the Tribunal on 4 September 2017 in relation to the specific confidentiality order should be revoked.
The objection decision relating to the assessment of GST amount and notice of administrative penalty is affirmed.
88. I certify that the preceding 87 (eighty-seven) paragraphs are a true copy of the reasons for the decision herein of Ms G Lazanas, Senior Member.
...........................[SGD]...........................................
Associate
Dated: 17 July 2019
89. Date(s) of hearing:
90. 4, 28 September 2017
91. Date final submissions received:
92. 7 November 2017
93. Counsel for the Applicant:
94. Ms M Hall
95. Solicitors for the Applicant:
96. MDW Law
97. Counsel for the Respondent:
98. Mr G O'Mahoney
99. Solicitors for the Respondent:
100. ATO Review and Dispute Resolution
101. Counsel for the Witness:
Mr Djurdjevic
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